Navigating the complex world of member options
31 May 2018 - Estimated reading time: 5 minutes
There was a time when life was simple for members of defined benefit pension schemes. You signed up, paid your contributions and when you retired, took the tax-free lump sum and waited for your pension to pop into your bank account every month.
There was no need to engage your brain because everything was done for you. I call them the roll-on roll-off ferries of the pensions world. Just hop on board and hop off at retirement with all decisions, including your destination, made for you by the trustee and sponsor.
These days the picture looks very different. To transfer or not to transfer? To have stability or flexibility? And, if members do transfer, how do they navigate their way through the pros and cons of the many different options they’re then faced with? Cash, income, drawdown or a mix of all of it? So much choice can be both intimidating and paralysing. It can also be liberating depending on how you approach it and how much support you receive to help you get there. This is a decision that will have a real and felt impact on peoples’ lives both now and in the future. Once made, it’s a decision that can’t be changed.
We know from recent research that the numbers of people transferring away from defined benefit schemes is up four-fold compared to pre-April 2015 levels*. How many of these members have made the right decision for their financial future? And whose responsibility is it to help them get to the right decision?
Although the prompt often comes from employers, the trustees also have a responsibility to ensure that members are prepared for the future and know what their options are. Having a long-term approach that educates members before they get to decision time can really help to prepare them mentally and emotionally for making such an important decision. The more it becomes part of the everyday narrative of what it means to be a member of a DB scheme, the easier it will be for members to engage with the decision when the time comes. What we’re talking about here is changing attitudes, expectations and understanding so that members are better equipped to have the conversation with a financial adviser about their options and more able to continue to manage their investments throughout their retirement if they do decide to take a transfer. We should never underestimate the shift that’s needed to think differently about your DB scheme benefit and to see it as something flexible that gives you alternatives.
Whatever decision your members make, it would be good to know that you’ve helped them to make the right choice for their life. You can only do that by giving them every opportunity to explore what these choices could mean for them through an ongoing communication programme that explains things simply using the written word, video and online resources so that members can dip in and out when they need to. By re-engaging with your members on an ongoing basis and over a long period of time, you’re enabling them to plan their futures with a more complete picture of their potential income in retirement and giving them every chance to make a decision they feel both confident and happy about.